"No Surprise" Good for PCE, Economic "Cracks" Still Show

Core Insights - The recent PCE data showed no surprises, indicating inflation remains a concern, particularly with core PCE at 2.9% year-over-year, which is above the Fed's target [2][3][6] - There is a divergence in views among Fed officials regarding the timing and necessity of rate cuts, complicating future monetary policy decisions [3][8] - The labor market shows signs of weakness, but current economic data, including a revised GDP growth of 2.5% and strong consumer spending, suggests resilience [6][7] Inflation and Economic Data - Core PCE inflation is still considered too high, leading to potential discussions on rate cuts at upcoming Fed meetings [2][3] - Inflation expectations have shown some decline in consumer sentiment surveys, which may provide a more optimistic outlook [4] - The upcoming labor market report is anticipated to be a significant catalyst for future Fed decisions [5][7] Market Reactions and Yield Trends - The 10-year Treasury yield is currently fluctuating around 4.18%, with expectations that it may remain in this range despite potential Fed rate cuts [10][11] - Elevated inflation and fiscal concerns are likely to keep long-term yields high, impacting mortgage rates and housing market pressures [11][12][13] - The relationship between long-term yields and the Fed funds rate is under scrutiny, as investors may demand higher yields in an inflationary environment [11][12]